January of 2005 was the target date of completion for the Free Trade Area of the Americas (FTAA), which failed between 2003 and 2004, faced with difficulties during the negotiation process.   With too many conflicting interests, the negotiating teams of the United States, Brazil and Argentina each brought independently, too many non-negotiable points to the table.   South America initiated the regional integration within the framework of the South American Community of Nations, union of the Andean Community (ACN) and MERCOSUR.   In response, the United States promoted the signing of Free Trade Agreements (FTAs), whether they were bilateral (Chile, 2004) or with more or less connected regions (Central America and the Dominican Republic), the ACN or its member states.   The forerunner to this strategy is, of course, NAFTA (North American Free Trade Agreement), launched in 1994 and which, to a great extent, served as a model for the FTAA.   The progress of negotiations between Andean countries and the United States, however, threatens the South American process, since FTAs are considered to be incompatible with regional agreements.

In an evaluation of Free Trade Agreements it is worth remembering that these are now arrived at within the framework of the Doha round of World Trade Organization (WTO) talks and, however, some analysts remark that in certain cases they go beyond it.   This round was stalled by the refusal of the Group of Twenty (G20) countries to allow a negotiation where there would be no reciprocity on the subject of agriculture: Developed countries demand the elimination of all subsidies and restrictions on agricultural trade, but the G7 maintains the subsidies and restrictions on trade of its own agricultural sector.   In addition, the United States insists on promoting the trade of Genetically Modified (GM) products and on breaching the food sanitation regulations of its partners, without necessarily offering the same in return.   In this way, they guarantee markets for products whose importation is prohibited in many countries and whose consumption is not allowed within the United States.

What the negotiation (divided country by country) has achieved, following the bilateral spirit of George W Bush's government, is that two economies of different sizes are seated at the table and are negotiating as if they were equal, with the same power of negotiation.   The first thing that both sides have achieved, differences overcame, is to have accepted a tribunal of bilateral American arbitration for cases of conflict over investment and foreign debt.   This is a reversal of the multilateral doctrine of all the United Nations members and before that of the League of Nations, which used multilateral mechanisms such as the Paris Club and the London Club, amongst others, to resolve conflicts over debt.   The return to bilateralism by the United States is reminiscent of the years of Harding, Coolidge and Hoover, in the twenties, which did so much damage to the international system.   This demand for the FTAs goes further than the WTO Doha round suggests.

The privatisation of health and education services has been agreed upon, which will leave the poorest sectors of society in the hands of the State and the less poor under the control of the market, with the effects that this has on the quality of services and its availability to the public.   The exception would be that the constitutions of the most Latin American States are inspired by the French Constitution, and they consider it a State's duty to offer free health and education services to the whole population without any discrimination.   Likewise, the protection of small business has been eliminated from State purchases, meaning that companies from the United States will be able to make tender bids in competition with small companies from other countries.  

In addition, the extension of the clauses concerning intellectual property of brand names and second medical use patents has been allowed, which is not proposed in Doha.   This has a direct impact on the so-called generic medicines that are produced after the expiration of the brand names.   The difference in price for the patient is at least from 10 to 1.   For cancer, HIV/AIDS and cardiovascular diseases, this has a definitive effect on the life expectancy of the poor and middle class patient.   Among the services that had not been affected in the past by economic liberalisation are cultural services.   Far from taking the French exception as the rule by allowing the State-sponsored manufacture of cultural products, this area was opened up to international competition.   The exception to this pattern is Mexico, which maintained the role of the State in this field.

Among the reasons put forward for accepting these Agreements is that the access to a market the size of that of the United States will facilitate the growth of the exporting sectors, and that it will promote new direct and indirect export activities.   It is hoped that the efficiency of these activities will result in the modernisation of the economy and a more rapid and sustained growth.   However, this is not the case for many American countries, except for Canada and the United States.   Therefore, even though practically all countries have multiplied their exports, they have not followed a path of rapid and sustained growth with the generation of jobs.

It is in this way that Mexico, with the oldest FTA, has seen its flow of emigration increase, so that it is estimated that some 4 million illegal immigrants currently live in the United States, out of a total of 10 million immigrants since 1994.   Whilst the balance of trade with the United States is positive, overall it continues to be negative despite having multiplied its exports by eight times since 1980.   A seldom discussed element is that at the same time as the exports expanded, imports have grown at a faster rate, and have taken the place of the national production of input materials and of final products.

The development of the assembly industry in the border zone has had the following effects: a drop in the price of the workforce, a precarious job market, and a lack of variation in salaries.   The production of the zone became linked to the exports of the United States, and the impact on the Mexican Gross National Product (GDP) is very low.   Mexico lost the industry that it had, and the new one is entirely assembly plants with no links within the country and with investments free of income tax and Value Added Tax -in a tax-free zone.  

According to the World Bank, Mexico had 13% more income per capita in 2004 than in 1980, and its GDP has followed exactly the same pattern as that of the US since 1994.   The economy was integrated and moved away from the labour force.   The consequence is that now there is a serious emigration problem, from the countryside as well as from the largest cities of Mexico towards the United States.   The FTAs are not integration agreements that incorporate social and political variables in the same way as the European Union does, but instead focus exclusively on trade.   They do not include freedom of movement of people, but restrict this to movement of capital, goods and services.   In the end, only a few commercial banks of Mexican capital are left, supermarket chains were bought by American companies, and the majority of the products they stock are imported.   The national food and agriculture industry was transformed and declined, whilst the countryside has to compete with subsidised imports.   The result is an accelerated depopulation of rural areas, the other face of emigration.

Latin American governments opted out of the peer integration programmes of the CAN (Andean) and SIECA (Central American) to try to seal the FTA with the United States, not only because they have been pressured from Washington but also because they believe that the opening up of the United States market under equal conditions is going to benefit them.   That this is done outside the multilateral framework, or that the multilateral framework has not advanced due to a lack of reciprocity of negotiated terms, among other circumstances, seems to have less importance than the expectation of a bigger market upon completion of the ATPDEA (Andean Trade Production and Drug Eradication Act) in December of 2006.

The threat from Washington was that, unless an FTA was signed, the benefits of the ATPDEA would be lost. In the end, Washington is achieving the FTAA via bilateral negotiations and has managed to divide Latin American governments once again.   The countries of MERCOSUR continue on their course and look to the Pacific for a solution in the form of physical integration : a distribution network is being established to transport Venezuelan oil to Argentina, and soon, the same will exist for Bolivian gas.   On the Pacific coast, however, the integration is not between countries but with the neighbouring country to the North.   Finally we must consider that following the opening-up of trade a decade and a half ago, today balances of payments are sustained by the remittances of immigrant workers rather than by positive trade flows, with the exception of Chile and Costa Rica.

BY:

Oscar Ugarteche
Institute of Economic Research, UNAM - México

Fidel Aroche
Economics Faculty, UNAM - México

Translated by: Kate Stansfield